Analysis of market competition and information asymmetry on selling strategies

Abstract

In this paper, we consider the seller's selling strategies in a supply chain consisting of one supplier and multiple retailers, who compete in the same consumer market. The production lead time is relatively long compared to the selling season. Therefore, the supplier can choose to sell the products either before production begins (i.e., advance sale) or after production finishes (i.e. regular sale). Different to existing literature, we analyze the selling strategies in a more realistic environment where each buyer has a private demand signal about the consumer market at the beginning of the selling season. Three different scenarios (i.e., the monopoly retailer, the competing retailers with information sharing, and the competing retailers without information sharing) are analyzed to study the effect of competition and information asymmetry on the supplier's selling strategy. In each scenario, we establish the equilibrium result and investigate how the competition and information asymmetry affect the supply chain and its each party's profits with the underlying reason explained. Our main findings include: (1) the supplier is optimal to adopt regular sale when the retailers form as a monopoly retailer, or when the retailers competing with each other with demand information sharing; (2) he prefers advance sale when facing competing retailers with private information;(3) competition and private information also influence the retailers' and the supply chain's preferences on the supplier's sale strategies. Moreover, when the retailers have private information under competition, we find interestingly that (1) the supplier's profit is increasing in the information precision under advance sale, while it is not affected by information precision under regular sale; and (2) the retailers' profits may decrease in the information precision under regular sale.

A reverse mechanism of advance selling driven by information asymmetry and competition

“…Ma et al [ 25 ] demonstrate that the market power of a manufacture and the risk averse consumers affects the benefit of advance selling. Xue et al [ 26 ]analyze the competition and information asymmetry in selling strategies, find that the supplier prefers advance sale when facing competing retailers with private information. These papers discuss the decisions and benefits in various settings of competition combined with factors such as attitudes and valuation of customers and find different conclusions of advance selling.…”